Interesting Thoughts on Postal Reform

The U.S. Postal Service’s financial woes are starting to attract commentary from prominent thinkers. In the first post, Robinson looks at recent articles from Felix Salmon, Gary Becker, and Richard Posner and concludes that while their analyses are incomplete, their observations deserve further consideration. The three pieces share a common theme: a government postal service micromanaged by Congress and regulators is no longer workable. Thus, it is time to consider reforms such as deregulation and privatization.

As Robinson notes at the outset, “any postal reform measure has to go beyond fixing retiree obligations or restructuring operations to reduce costs.” Robinson believes that a failure by policymakers to address three issues in particular will probably force Congress to re-examine the USPS’s business model again in a few years (I know, Congress kicking the can down the road? Shocking.):

1. Profit must be an explicit goal for the organization and profit must reflect a sufficient operating margin to ensure cash is generated to make capital investments needed to improve service once the current financial difficulties pass. There is no excuse for the Postal Service to be the only large national post suffering major losses in the Euro Zone, North America, and Oceana and Australia.

2. The Postal Service has to be granted significant relief from both congressional and Postal Regulatory Commission oversight. To the extent that either law or regulatory precedent freezes the status quo and prevents market-based pricing and market-based service quality, that law and those regulations must be removed. In particular both restrictions on distance-based and regional pricing for commercial mailers need to be lifted in order to develop market-based and not cost-based prices.

3. Transition of the Postal Service to an entity that operates under standard corporate business, employment, and contract law must occur within a reasonable period. During this period, the privatization of the Postal Service as a public utility providing delivery services must be seriously examined.

The second post is related to Robinson’s issue #1: the need for capital investments to improve services and reduce operating costs. According to Robinson, the USPS’s new proposal to restructure its processing and transportation network is a “second-best option” because “pricing, financial, and labor contract constraints prevented it from making a proposal that could provide better service or further reduce operating costs.”

Robinson’s analysis of these constraints is informative, but it’s his conclusion that is worth highlighting here:

The capital constraint illustrates that significant investments in plant and equipment could reduce costs and increase profits. The capital constraint illustrates than maintaining the current payment schedule for retirement obligations, or adding more debt to cover those obligations would not help the Postal Service develop a network that optimally minimizes cost or sets the capital/labor ratio. The capital constraint hints that the Postal Service, cleared of the disputed portion of its retirement obligations, would be attractive to private investors who could use their capital to make network improvements that the Postal Service could not afford as long as it remains a government enterprise.